Vale partner says Guinea seeks to seize iron ore rights

DAKAR/LONDON

DAKAR/LONDON (Reuters) - The mining arm of Israeli billionaire Beny Steinmetz's business empire has accused the government of Guinea of seeking to "illegally seize" its assets through a probe into how it won rights to mine part of a major iron ore deposit.

Privately owned BSG Resources, which has been working in the West African country with Brazilian mining major Vale (VALE5.SA), confirmed it had received a letter from a government commission alleging improper behaviour and graft in its winning of rights to develop blocks in the Simandou region.

The Financial Times reported on Saturday that a government committee backed by philanthropist George Soros had launched a corruption probe into the award process for the blocks in 2008 and sent the letter to BSG including a range of charges.

The blocks were stripped from Anglo-Australian miner Rio Tinto (RIO.AX) and the licenses passed to BSGR in 2008, under a previous administration. Simandou, in Guinea's hilly and forested southeast, is estimated to hold what could be the world's largest unexploited iron ore reserves.

"This is the fifth and most clumsy attempt by an already discredited Government of Guinea in an ongoing campaign to illegally seize BSGR's assets," BSGR said in a statement.

It said the letter made "ridiculous" allegations accusing BSGR of making payments and offering gifts including a diamond-encrusted gold watch to the country's last president.

A spokesman for Guinea's government confirmed it was reviewing BSG Resources' contract, but said it was part of the country's broader review of resource agreements and that it was not targeting BSG Resources in particular.

"Our role is to protect the interests of the Guinean people," said Damantang Albert Camara. "BSGR should react by answering our questions. We have no intention of seizing the licenses of a company that has acquired them legally."

BSG Resources said its licences were issued "through due legal and transparent processes" and had been judged legal by an international law firm working for the government.

Camara would not confirm details of the letter BSG said it had received from the government or any charges made by the committee.

BSG said the government had been in possession of all the documentation it was now requesting for 12 months, but that it would resubmit all requested information.

Relations between Guinea's government and mining firms operating in the resource-rich nation have been strained since the government began a review of its mining code aiming to boost the state share in projects and reassess all of the country's resource contracts.

BSGR, which has a track record in operating in some of Africa's toughest geographies, brought in Vale to jointly develop the Guinea blocks, but the Brazilian miner last month announced it would put the project on hold, prioritising developments closer to home.

The project, estimated to cost some $10 billion, is now mothballed, leaving thousands without work.

"The politics - it was too much for Vale at this stage in the cycle," one source involved in the situation said, adding that Vale could return once the Guinean legal situation was clarified. Vale agreed in 2010 to pay $2.5 billion for its stake, but has paid only $500 million.

Rio is still developing its remaining portion of Simandou, telling reporters last month that it remained committed.

Guinea enlisted Soros' help last year as part of a push to review the operation of the mining sector and fight corruption, saying it did not have the funds to employ commercial consultants as advisers.

TOUGHER TIMES

Simandou is one of the world's great untapped deposits, but iron ore projects across the emerging producing nations in West Africa have become less attractive as iron ore prices weaken and Chinese demand for the steelmaking ingredient cools.

Guinea, which relies on mineral extraction for 70 percent of its exports, has felt the impact of a weaker market as miners like BHP Billiton (BLT.L) (BHP.AX) pull out, but has also dragged its heels on the review of the mining code.

Steinmetz, one of Israel's richest men, is best known as a diamond miner and trader. Forbes earlier this year estimated his fortune at $5.9 billion.